Glossary
Equity contribution
Also called: equity, borrower contribution
An equity contribution is the money or value a borrower puts into a purchase or project from their own resources. In development it can include cash, land value already held, or subordinated funding from related parties if the lender accepts it.
An example
A developer has owned a site for some time and it has increased in value. The construction lender agrees to treat part of that land value as the developer's equity contribution, reducing the cash required.
Why it matters
Lenders want borrowers to have meaningful money at risk. How a lender recognises equity, and in what order it must be spent, affects how much the borrower needs before construction can start.
Points to check
Ask the lender exactly what it counts as equity, such as cash, land value already held, deposits paid or related-party funding. Check the order in which equity must be spent, because many construction lenders require it to be used before their funds. Keep evidence of every payment you make towards the project. If part of your equity is borrowed elsewhere, tell the lender, as it may treat that differently.